The Norcross, Georgia-based, EMS Technologies, provider of wireless connectivity solutions plans to enter the in-flight passenger communications business for airlines and business aircraft owners by buying a defense contract company, Formation for $40 million and the amount could increase to an additional $15 million if Formation achieves certain financial targets.
The company said that it has signed a definitive agreement to acquire Moorestown, N.J.-based Formation, a provider of airborne wireless network products that enable in-flight passenger communications with terrestrial and satellite networks and EMS expects the acquisition to be accretive and to add EBITDA of $5 million to $7 million the first year post-acquisition.
This move represents the latest in a series of strategic acquisitions to strengthen EMS's position as a leading mobile broadband and asset tracking solutions provider. The acquisition would bolster EMS's aero-connectivity capabilities, enabling a far-reaching solution for passenger mobile access in the cabin.
''Acquiring Formation signals EMS's continued investment in its aero-connectivity strategy to become a more comprehensive solutions provider. Our goal is to meet the growing demand for aeronautical communications from airlines and business aircraft owners, as well as governments,'' said EMS Technologies' President and CEO Paul Domorski.
''With Formation, EMS covers the spectrum of air-connectivity solutions, delivering the platforms and systems airlines want across multiple satellite platforms,'' he added.
''EMS now has the capabilities to adapt products and technologies from one aero-connectivity application to another, enabling the Company to get to market faster and more profitably than companies entering the market today,'' said Neil Mackay, EMS Technologies' executive vice president and chief operating officer.
In addition, Mackay noted that EMS and Formation enjoy common supplier relationships and complementary customer bases in the avionics, defense and transportation markets.
Formation's fastest-growing products are its rugged servers and cabin Wireless Access Points (WAP's), which enable aircraft broadband systems to extend connectivity to laptops and PDA's. Formation's hardware supports in-flight communications regardless of whether the connectivity is through terrestrial or satellite-based networks.
Formation is an approved direct supplier to Airbus and also is a major supplier to Rockwell Collins, Aircell and Panasonic. Since 2006, Formation has generated a compounded annual growth rate of 30 per cent and in 2007, sales grew by 57 per cent.
R. Nim Evatt, president and CEO of Formation, will continue to lead Formation post-closing, reporting to Neil Mackay.
''Formation is excited to join a well-established industry leader of aeronautical satellite communications systems and a company with so many synergies with our business,'' said Evatt.
''Being part of EMS will allow Formation to build on its manufacturing excellence, continue to serve our customers and more rapidly pursue new applications in our expanding aviation portfolio, including integration of in-flight information and entertainment systems,'' he added.
EMS plans to retain Formation's current operations in Moorestown, N.J.
Formation designs and manufactures hardware and software products and provides engineering services for the defense, aviation, data communications and transportation industries.
With in-flight Internet for airlines business being in its nascent stages, Aircell has ground-to-air broadband network, Gogo, and has tied up with few US domestic airlines like American Airlines and Virgin America to provide passengers with in-flight Internet service with Delta Air Lines and Air Canada going to provide the same services through Gogo next year.
Other airlines such as Southwest and Alaska are looking to provide satellite-based services because Aircell cannot be used on flights to Alaska, Hawaii or Mexico.
Alaska Airlines says it plans to offer broadband Internet access on its aircraft, but instead of opting for Aircell's Gogo service, it has chosen to use satellite service from Row 44, which offers an in-flight broadband service based on Hughes' satellite network system.
Gogo had acquired the spectrum for its network for $31.3 million when it bid for the 3-megahertz license that was being auctioned by the FCC.
American Airlines, which has Aircell's Gogo mobile broadband service on three coast-to-coast flights, charges $12.95 per flight on its 15 Boeing 767-200 aircraft while Delta Airlines charges $9.95 on flights of three hours or less and $12.95 on flights of more than three hours.